GNC’s 2018 outlook clouded with collapse of bond issue

With GNC shares trading near 52-week and all time lows and the collapse of a planned bond issue the rumors of a sale of the parent company are likely to gather steam in the coming year.

GNC shares hit rock bottom earlier this week, trading near the all-time low of $4.62 a share. Shares are up slightly today, trading at $4.82 on the New York Stock Exchange at publication time. But GNC shares were trading at more than $60 a share in 2013. The company has lost more than 90% of its book value during a time when overall sales in the dietary supplement industry have grown in most categories.

GNC bet hard on sports supplements during a time when market dynamics in the category changed. Sales moved increasingly online and to platforms like bodybuilding.com​​ and in particular Amazon. At the fringes, the rise of low-cost contract manufacturers catering to ephemeral online brand holders that start out selling a few hundred or a few thousand bottles nipped at the edges of GNC’s private label business. In addition, GNC operates more than 6,000 stores, some of which are located within shopping malls that are declining in attractiveness to consumers.

Bond issue derailed

The company announced earlier this month that it had retained Goldman Sachs to “review strategic alternatives to optimize its capital structure and enhance shareholder value.​”​ This announcement came via a press release that said the company had backed off on issuing new senior secured notes when it failed to achieve the terms and conditions it sought.

CEO Ken Martindale maintains the company retains enough liquidity to continue to invest in its turnaround strategy, which it labels as One New GNC. But failing to achieve favorable terms on new debt must be seen as a thumbs down on the part of investment bankers to put cash behind that new vision. GNC’s most current 10K statement lists $1.4 billion in current long term debt.

“Following a thorough process, we determined that the terms offered to GNC under the potential refinancing were not in the company's best interests at this time,"​ said Ken Martindale, who was named CEO in September. Martindale took over from interim CEO Bob Moran. Moran took over after the ouster of CEO Mike Archbold.

"Our focus remains on continuing to build momentum behind our One New GNC strategy and ensuring we have the appropriate capital structure to support those efforts.​ As we work with our advisors to review and optimize our capital structure, we are confident that our cash flow and liquidity will enable us to continue to invest behind our key initiatives to provide customers innovative, highly differentiated products and experiences, drive sales growth and improved performance, and deliver shareholder value,​”​ Martindale said.